As you may be aware, the Trusts Act ("Act") has received Royal Assent and will come into effect on 30 January 2021. Amongst other things the Act codifies the duties of trustees and requires greater transparency with beneficiaries. It will affect your current trust arrangements. You should consider reviewing, updating and making structural changes to your Trust if necessary, in order to future proof your Trust. The following is a summary of the key changes and how they may affect you.
Duties of Trustees
While the Act does not create any new duties for trustees, it does codify the pre-existing (common law) duties and categorise them. 'Mandatory duties' (outlined in sections 23-27) include the duty to act in accordance with the terms of the Trust and to act in good faith. 'Default duties' (sections 29 38) on the other hand include duties such as the duty not to profit or the duty to act unanimously. These duties are often varied in trust deeds, and this practice can continue.
New Legal Presumption
The current trust law is ambiguous on the rights of beneficiaries to trust information. There will now be a presumption under the Act that trustees must make available to every beneficiary or representative of a beneficiary 'basic trust information', unless there are 'compelling reasons' to withhold it.
Basic Trust Information
Basic trust information which must be provided to beneficiaries is outlined in section 51 of the Act:
• The fact that a person is a beneficiary – even if they are only a discretionary beneficiary.
• Name and contact details of the trustee/s.
• The occurrence of, and details of, each appointment, removal, and retirement of a trustee as soon as it occurs.
• The beneficiary's right to request a copy of the terms of the Trust or Trust information.
In general, basic Trust information is information that is reasonably required by a beneficiary to enable the Trust to be enforced. This is a wide definition – it will be important for trustees to seek legal advice as to exactly what information should be disclosed and when. For example, beneficiaries are highly likely to want to see a Trust's financial accounts and asset holdings – whether or not they're entitled to this will depend, amongst other things, on the terms of the Trust itself.
Whether Presumption to Disclose Basic Trust Information Applies
In some circumstances, the presumption to disclose may not apply.
As set out in section 52, trustees will have to decide whether the presumption applies to each beneficiary. In making this decision, they must consider a range of factors (section 53):
• The nature of the interests in the Trust held by the beneficiary. This includes evaluating the extent of their interest (for example, if it is a major or minor interest
comparative to other beneficiaries) and the likelihood of the beneficiary actually receiving Trust property at some point in future.
• Whether the information is confidential.
• The intentions of the settlor as to whether they wanted such information to be disclosed to beneficiaries.
• The age and circumstances of the beneficiary (and the Trust's other beneficiaries).
• The effect that giving the information will have on the beneficiary, the trustees themselves and related third parties.
• The practicality of distributing information if there are a large number of beneficiaries or if they are unascertainable.
• How giving that information will affect inter-family relationships and the relationship between the trustees and the family (if it is a family trust).
• Whether the information can be practically given in a redacted or limited form.
• Any other factor the trustees reasonably consider relevant.
Indemnity Clauses for Trustees
The Act no longer allows for broad indemnity clauses that aim to shield trustees from claims of gross negligence, dishonesty, or wilful misconduct. Indemnity clauses for ordinary negligence will still be permitted – however they will need to be carefully drafted so that they are not later struck down by the courts.
Other Significant Changes
Other changes include enabling trusts to exist for 125 years (up from 80), clarification and simplification of the process for appointing and removing trustees, clear guidance of who can be a trustee, and new ADR processes.
As shown above, the considerations a trustee must take into account when making the decision whether or not to disclose basic trust information to beneficiaries are both numerous and complex. As the new Act comes into force it will be increasingly important for trustees to seek legal advice as to their duties and responsibilities towards beneficiaries. In the early stages of the new regime, this decision making process may be vigorously contested by beneficiaries wanting access to trust information. The ultimate decision around disclosure or non-disclosure needs to be made in a manner that is compliant with the law – but also be practical and minimise any relationship harm to the family involved.
The new rules are a marked departure from the status quo and will change the way your Trust operates. Trustees need to be fully prepared before the implementation date of 30 January 2021. A comprehensive review of your Trust would enable you to decide what changes are necessary – if indeed they're possible under the terms of your Trust – and perhaps give you the opportunity to consider whether your Trust remains the best solution. Please consider the above, read through the new Act (www.legislation.govt.nz) and let us know if/when you would like to discuss.
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© McVeagh Fleming 2020
This article is published for general information purposes only. Legal content in this article is necessarily of a general nature and should not be relied upon as legal advice. If you require specific legal advice in respect of any legal issue, you should always engage a lawyer to provide that advice.